Whether you call it “group discount buying”, “social commerce” or “E-mail coupon deals” – it’s clearly an idea whose time has come…relative to say, Mercata’s 1999-2001 $89 million crash and burn, that is.
But it is back by popular demand. Only this time it’s not the ‘Costco of the Internet’ model, aimed at pooling geographically disparate groups of consumers around hard retail goods, competing with the eBays and Amazons of the world-but rather, more focused on what services are relevant here (locally) and now (immediate).
“The method of aggregating demand to reduce prices on products sold online is new and may not become a popular method of purchasing goods and services,” the company acknowledged back in 2000. Maybe Mercata was just premature; perhaps their behavior changing vision was just ahead of its time relative to the critical mass of modern social graphs which power the group buying models of today?
And ten years later, it’s impossible to ignore the massive resurgence of this concept. Reignited by the infamous Groupon, Steven Carpenter said it best: “No other startup has gone more quickly from launch to $1 billion+ in valuation except YouTube (12 months), which Groupon achieved in 16 months with its latest $135 million infusion two weeks ago.”
Which brings us to the tale of one Minnesota player: DealStork.
Eden Prairie-based DealStork was founded in October of 2009 (1 full year after Groupon emerged) by U of M CSM Grads Tony Black and Andrew Rowe who saw an opportunity to integrate their entrepreneurial, sales and operational experiences into a web-based business model. A model that’s almost too intuitive to be true:
From the consumers perspective-
Step 1) Sign up to receive deals from DealStork
Step 2) Receive said deals
Step 3) Simultaneously Commit and share
Step 4) Pay only if the minimum is met
Step 5) Print and redeem your DealStork voucher
Consumers receive anywhere from a 40-90% discount on any variety of services ranging from health/wellness, dining, travel, entertainment and merchandise. The possibilities are endless to the extent that the deals can be achieved and redeemed within a timely and relevant manner.
From the vendors perspective-
Step 1) Identify a target customer acquisition cost
Step 2) Complete the formula to determine how many customers/sales are needed at what price to justify the DealStork campaign
Step 3) Design the promotion in coordination with DealStork
Step 4) Generate business
Step 5) Profit?
Vendors like DealStork because there’s no up-front cost, no minimum number of purchases/spend and they only pay for the marketing if the pre-established target is met. “We’re able to set a minimum number of purchases required on each deal before it’s actually active for the consumer. What this does for the business is it makes it risk free in the sense that if we’re unable to deliver the minimum, then there’s no cost to the business. Of course our goal is to always meet/exceed the minimum because that’s how we get paid.” says Tony Black, President of DealStork. Furthermore, the campaign is highly traceable and thus more quantifiable than traditional forms of advertising.
Black fully understands that what they’re offering is a marketing solution supplemented by the web; in this sense, he see’s the DealStork model as nothing less than the future of online B2C marketing through social commerce, and e-couponing. “We are the alternative to the traditional, and we all know what traditional means,” he adds.
Currently, DealStork is only offering its services within the Twin Cities market as they focus on developing the brand locally through customer relations and strategic partnerships like one they’ve inked with Direct Line Services which will help the company get in front of over 100 local dining establishments. The promotions are now running almost daily and some campaigns are even starting to stray in the direction of no minimums (which is apparently part of a larger trend says Black).
DealStork commissions are set at 30% off the top of revenue derived from the campaign, which Black says is significantly lower than the 50% industry average. Locally, DealStork predominantly competes with Minneapolis-based CrowdCut (owned by Kasa Capital), DC-based Living Social and obviously – Groupon.
“It really does seem like there’s a brand new competitor in the market on a weekly basis. There were about 10 in the market when we started and now there’s virtually an unlimited amount. Right now, outside our low commission rate, what I can tell you is that our advantage lies in the nuances of how we structure each vendors marketing campaign in a way that make sense for them down the road,” explains Mr. Black.
As the story unfolds, DealStork see’s its own marketing increasingly positioned towards the local angle. As Black describes, “The revenues that out of state competitors generate do not stay here and our customer/vendor base here in the cities can appreciate the fact that they are dealing with another local business that is more likely to recycle the money throughout our own economic environment.”
For a thorough understanding of the trend at large, Steven Carpenter’s guest post on TechCrunch last month goes deeper than we could ever dream of in a comprehensive “teardown” of Groupon (171m in funding) and its closest (US) competition-LivingSocial (49m in funding) & Buywithme (5.5m in funding).
“I think the potential for these kinds of offers on the web is a $5B+ opportunity. There is no reason to believe that this concept couldn’t be extended to virtually any category or service provider. But I do not think this is a winner-take-all market like auctions were when eBay took that market. There are no real technology advantages, there is nothing preventing a local vendor from using multiple platforms, and buyers don’t care where they buy so long as the deals are good…my take is that this is a winner-take-most market and looks more like search.”
An earlier post by TC’s European Editor, Robin Wauters, dissects the followers in greater detail, where the data points to some 66+ emulators in the US alone (before the shameless comment plugs). An obvious extension of this fragmented free-for-all are the rise of aggregation services like Yipit and DealRadar.
And the volume of competition is understandable as entrepreneurs often feel as though they’re building a better mousetrap…but how does it end? It’s not hard to imagine a future of pinched margins, outsourcing, and inevitable fallout. Conversely, the bigger you are the further you fall; who knows how/where things go as this concept evolves? How fast can VC money in the tens of millions pivot?
Let’s put the economics of scaling a consumer internet brand aside for a minute. What about the sales challenges from the vendor side of the equation? How long before vendors are inundated and overwhelmed with choices (I hear it’s already happening)? Who knows-maybe that’s a problem in-and-of itself worth exploring, that is, how will the vendors know which marketing partner is the best fit for them amongst a sea of options?
For those entrepreneurs looking to capture their own sliver of a slice in this inflated space, rather than the “everything to everyone mentality”, perhaps the hyperlocal angle and/or site-specific niches will be areas in which the behemoths will be slowest to plunder. In this sense, we think DealStork is on to something with its localized approach towards keeping the money around town — as opposed to say, Chicago or even Russia. Some creative forays into sectors and services outside the mainstream scope could also be a worthy experiment in a local market with such economic diversity and ethnic culture as the Twin Cities has to offer.